Ratio Analysis

Lol2013

Does anyone know where I can get concise brief notes for Ratio Analysis. My boss asked me as a favour as he has a presentation where he has to explain the meaning of each analysis in layman's language. I think the presentation is to bankers.

Any help would be appreciated

Axwell

Mod Edit - moved, please use the correct thread if one exists or else start a new one like I did for this.

TheCostumeShop.ie: Ronan

http://www.investopedia.com/university/ratios/

Lol2013

Axwell wrote: »

Mod Edit - moved, please use the correct thread if one exists or else start a new one like I did for this.

Sorry how do I start a new thread. I have checked the faqs and I can't figure it out.

Axwell

I already started this one for you..please dont go spamming boards with more threads and posts asking the same question over and over like you already have done!

Lol2013

Axwell wrote: »

I already started this one for you..please dont go spamming boards with more threads and posts asking the same question over and over like you already have done!

Sorry about that. Wasn't aware you couldn't post on other places.

Voltex

Some notes/definitions from my college days.
Just scroll down through them and youll come across some of the more common ratios.





Accounts Payable (Creditors, Payables)
Accounts payable are those accounts where the business has an obligation to payfor receiving goods or services. They are classified as a current liability.


Accounts Receivable (Debtors,Receivables)
Accounts receivable are those accounts where the business is owed money forproviding goods or services. It is an asset.



Accrual Concept
Accrual concept is one of the core accounting concepts. Accrual concept statesthat a economic event should be recorded in the period in which it is incurredrather than when it is paid for or when cash is received in return. It alsoincludes the Matching concept which says that the costs and revenues should bematched in the income statement



Accrued Expenses (Accruals)
Accrued expenses are those expenses which have been incurred but not paid.They are usually treated as a CurrentLiability

Accrued Income
Accrued income is income that is earned but not yet received. It is treated asa Current Asset.



Asset
Asset is something that is owned by a business that has commercial value orexchange value. Assets are subdivided into FixedAssets ie those that will be there for more than one year and Current Assets ie those that willconvert to cash within one year







Balance Sheet
A balance sheet isthe list of all the assets and liabilities of the business.





Capital Employed
Capital Employed reflects the Balnace Sheet value of the assets used by the business to generate revenue. It iscalculated as follows:

Capital Employed = FixedAssets + Current Assets - Current Liabilities.

It can also be calculated bylooking at the financing side of the balance sheet when it will be: . Capital Employed = Shareholders Funds +Term Liabilities





Cash

Cash includes all notes andcoins held by the business together with all credit balances in bank accountsand sometimes includes short term investments in other liquid assets eg GovernmentBonds













Cash Flow Statement
Cash flow statement is a financial statement that provides details of theinflow and outflow of cash for the business. It is divided into three parts:

cashflows from operations

cashflows from financing,

cashflows from investing





Collection Period (Days Sales Outstanding, Debtor Days)
Collection period defines the amount of time it takes to convert your averagesales into cash. In other words, it reflects the average number of days takenby the sales debtors for payment. It is calculated as follows

CollectionPeriod = (Debtors X 365) / Sales



Consistency Principle
Consistency principle of accounting says that the same accounting policies andprocedures should be followed in every accounting period.



Cost of Sales (Cost of Goods Sold)
Cost of Sales is the cost of procuring and processing goods. It includes directmaterial, labour and factory overheads.



Creditor Account
Creditor account is a cumulative record of all the creditors to the business.It is a record of the money payable to them.

Creditor Days (Payments Period)
This reflects the average number of days taken to pay creditors. It iscalculated as follows: C . Creditor Days = (Creditors X 365)/ Cost of Sales



Current Assets
Current Assets are those assets that are usually sold or converted into cashwithin a year.



Current Liabilities
Current liabilities are the liability obligations of the business which it isexpected to pay off within a year.

Current Ratio
Current ratio is the ratio that compares the current assets to the currentliabilities in the company. It is calculated by the formula: Current Ratio =Current Assets / Current Liabilities.



Days Inventory
Day's inventory shows the average amount of time that the items are in theinventory. It is calculated as follows:

Days Inventory = (Inventory X 365) / Cost ofSales

Days Payable Outstanding
Days payable outstanding shows the amount of time it takes for the business topay off its creditors (See Creditor Days)

Days Sales Outstanding
Days sales outstanding is the amount of time it takes for convertingdebtors/receivables to cash. (See Collection period)



Debtor
A person or persons who owe money to the business are collectively known asdebtors.






Debtor Days
Debtor days is the average number of days required to convert receivables tosales. (See Collection Period)



Depreciation
Depreciation is acharge for the use of fixed assets which reflects the book value of the amountof the assets consumed every year in generating revenue or simply due to thereduction in its value caused by wear and tear, obsolescence etc



Dividend
Dividend is a portion of the earnings of the business that is paid to theshareholders



Fixed Asset
Fixed assets are those assets that are required for normal conduct of businessand will be on the Balance Sheet for more than one year



GAAP
GAAP is the acronym for Generally Accepted Accounting Principles, which is anaccepted set of accounting procedures, policies and rules.



Going Concern Concept
Going Concern Concept of Accounting assumes that the business will remain inexistence for the foreseeable future.



Gross Profit
Gross profit is the excess of sales over production costs. It is calculated asfollows:

Gross Profit = Sales – Cost of Sales



Intangible Asset
An Intangible asset is an asset that cannot be physically seen or felt, but itspresence benefits the company, e.g goodwill.



Inventory (Stock)
Inventory is the stock of raw materials, work in progress and finished goods



Liability
Liability is a loan or a debt for the business that needs to be discharged.



Matching Concept
Matching concept is the concept in accounting that says that the costs andrevenues should be matched in the income statement. ( See Accrual Concept)



Net Profit
Net profit is the excess of income from all sources over all expenses.


Net Sales
Net sales is the amount of sales attained after deducting the sales returns,allowances, discounts etc.






Net Worth
Net Worth of a Business = Total Assets – Total Third Party Liabilities



OperatingProfit (Earningsbefore Interest and Tax , EBIT)
Operating profit is the excess of Gross Profit over operating expenses ie

Operating Profit = Gross Profit – S G & Aexpenses



Prepayments

Prepayments reflect amountspaid in advance to service providers for services which have not yet beenreceived eg Rent paid in advance. They usually are treated as Current Assets onthe Balance Sheet



Profitafter Tax (NetProfit)
Profit after tax is the excess of revenue over all the expenses and afterpayment of tax.

Profit Before Taxes
Profit before tax is the profit earned by the business before making thededuction for tax.

It is calculated as follows:

Profit before Tax = Operating Profit – Interest Charges



QuickAssets
Quick assets is the sum of the current assets minus inventory.



Receivable
Receivable is the money which is due to the business and has not yet beenreceived.



RetainedEarnings
Retained earnings are that part of the profit which has not been given to theowners, but retained in the business for future use.



Return onCapital Employed
Return on Capital employed is a measure of how effectively a business is usingits capital. Return on Capital Employed = Operating Profit / (Total Assets – Current Liabilities)

or
Return on Capital Employed = Operating Profit / (Shareholders Funds + Term Liabilities)


Return on Equity
Return on Equity = Net Income / Shareholders Funds



Selling,General and Administrative Expense (S,G & A Expenses)
Selling, general and administrativeexpenses reflect all the non production costs incurred in selling and distributing the goods and theadministrative expenses of the business.



Shareholders Funds (Shareholders Equity)

This reflects the total amountowed by the business to the owners. It includes Share Capital, Share Premium,Retained Earnings and Revaluation Reserves



Tangible Assets

These are all the physicalFixed Assets of the business including Land and Buildings, Plant and Machinery,Office Equipment and Computers, Fixtures and Fittings, Motor Vehicles



Term Liabilities

Term Liabilities are thoseliabilities which are payable more than one year after the Balance Sheet dateeg Bank Term Loans, Pension Liabilities



TotalAssets
Total assets is the sum of all the fixed and current assets.



TradeDebtors
Trade debtors are those who owe the business money, on account of goods sold tothem on credit.



Turnover
Turnover is sales.



Useful Life
Useful life is the approximate amount of time for which the asset is assumed tobe useful before it is fully depreciated.



VariableCosts
Variable costs are those which vary with an increase or decrease in theproduction.



WorkingCapital
Working Capital = Current Assets – Current Liabilities

Lol2013

Thanks for your help